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Gerstner relates how he beat the blues at IBM

Former IBM Corp. Chairman and CEO Louis V. Gerstner Jr. learned a lot about reforming big business during his nine years at Big Blue. Financial challenges, a rigid corporate culture and a demoralized workforce were just some of the issues that Gerstner faced during his effort to lead the company’s turnaround.

The former CEO shared his experiences, along with a few unorthodox ideas, at the SHRM Annual Conference during the June 26 general session, which featured a special episode of “CEO Exchange,” the 10-show PBS series sponsored by SHRM.

“There’s nothing like a nice intimate chat with a few favorite friends,” quipped “CEO Exchange” moderator Jeff Greenfield as he launched into a candid conversation with Gerstner in the mammoth hall.

Gerstner said one of his first tasks in revitalizing IBM was to study the company’s culture and identify barriers to its success.

“Everything you do to try to adapt and change and renew a company—whether it’s organizational change, marketing, finance, HR—takes place in a crucible and that crucible is culture,” he said.

IBM’s culture, like that of many successful companies, was especially entrenched, Gerstner noted.

“What happens with most successful companies is there’s a tendency to say, ‘Let’s write down why we are successful,’ to try to codify it, but what people fail to understand is this creates a rigid, backward-looking environment.”

Not surprisingly, not everyone welcomed Gerstner’s efforts to change IBM’s playbook. He recounted one instance when he discovered that the head of IBM’s European operations was failing to pass along e-mail messages to employees from the chairman. The stonewalling employee was fired even though he was a top performer.

“I do believe in public hangings,” Gerstner joked. He said his actions showed everyone in the organization that ‘Lou really means it’ and that he was willing to purge executives who didn’t take his reform strategy to heart.

Gerstner said he worked on aligning IBM’s stated values with its day-to-day policies. For example, even though the company publicly touted the value of teamwork, Gerstner said, compensation was based on individual performance.

“I changed the compensation system. I called managers in and said, ‘From now on, your variable pay is based on IBM’s performance as a whole and not just your division’s performance.’ ”

Some of Gerstner’s other acts included doing away with IBM’s famed dress code in 1995.

“You would have thought I’d sold the company to the Russians,” said Gerstner, who replaced IBM’s old “dark suit, white shirt” dress code with a “common sense” policy that gave employees discretion to wear clothing appropriate for their workday.

Despite the challenges he faced revitalizing IBM, Gerstner said, he had few regrets and believes he made more correct decisions than wrong ones.

“We probably waited too long to make some decisions, especially some HR decisions, but none of those were fatal,” he said.

Gerstner, currently chairman of The Carlyle Group and a director of the National Committee on United States-China Relations, also spoke to SHRM members about his passion to reform K-12 education in America.

“If we don’t reform our K-12 education system by 2050, it will destroy America,” he warned. “We’ve got a big problem, and if we don’t fix it soon it will be too late to fix it.”

After the general session, Gerstner signed copies of his book Who Says Elephants Can’t Dance? (Harper Collins, 2002) at the SHRMStore.